Latin America’s recent economic fortunes highlight the region’s closer economic ties with Asia. China, in particular, has grown into a crucial source of demand for Latin American commodities over the past two decades, providing significant gains to the region. The flip side is that the ongoing structural slowdown of Chinese investment is weighing considerably on the prices of those commodities, and the countries that export them.

But Asia can be much more than just a source of episodic windfall gains (and losses) for Latin America. Like a windmill, Asia could help to power a stronger Latin American economy—by providing an example of successful regional trade integration and through greater direct links across the Pacific that benefit both sides. However, securing these benefits will require clear and realistic objectives, a long-term strategy, and attention to the political and social implications of greater economic integration.

Why have businesses in advanced economies not been investing more in machinery, equipment and plants? Business investment is the largest component of private investment, and its weakness has puzzled many of us.

Some believe that the key to more business investment is less uncertainty about fiscal policy, regulation, and structural reforms. Some believe that it is providing better financing, including for small and medium-sized enterprises (SMEs).

Global financial markets traditionally take their cue from the United States. Unexpected Fed rate hikes have unsettled global markets in the past. The entire global financial system threw a tantrum when then Fed Chairman Ben Bernanke merely suggested in May 2013 that the end to bond-buying and other policies could soon begin. However for the past year, the gears of global markets seem to have been thrown into reverse — it is German government bonds, known as Bunds, rather than U.S. bonds, known as Treasuries, that appear to be driving prices in global bond markets. This role reversal could add a new layer of complexity to investor calculations as they prepare for the beginning of Fed interest rate hikes, which are expected later in 2015. Also, as developments in Greece lead to rises and falls in Bund and Treasury yields, this is a trend worth keeping an eye on.

The word elephant may not be right: As dramatic as the events in Greece are, Greece accounts for less than two percent of the Eurozone GDP, and less than one half of one percent of world GDP.Continue reading →

Academics and policy-makers alike have long struggled with the question of whether to use monetary policy to dampen asset price booms – whether to “lean against the wind” or not. Can officials identify emerging asset price bubbles, what are the implications of bursting them, and is monetary policy the appropriate response to potential bubbles? These questions have become even more important to the policy debate in the wake of the global financial crisis, which was preceded by an unsustainable boom in sub-prime mortgage lending and housing prices.

Given over six years of near zero policy interest rates, should the U.S. Fed now use interest rates to lean against potential financial stability risks that may have built up?